Looking for value in the shadows of the market. I am Stockcoach, and this is my story.

Tuesday, January 10, 2006

What's the difference between ATA, ATA.TO, and ATS?

Big day today. My portfolio gained about $9,700 thanks to nice moves in CRNT, ATS, and MNDO. What's the difference between ATA, ATA.TO, and ATS? If you are one of Cramer's homegamers, apparently there is no difference. Cramer recommended shares of ATS Automated Tooling on yesterday's Mad Money. Since this is a Canadian company traded on the TSE, the ticker symbol was ATA.TO. However, that appears have thrown many booyaheads off track, with the result that they shoveled their money into two unrelated companies, ATA and ATS. Up until today, I owned the latter. I was a little reluctant to part with my shares since I still like the company's fundamentals but when a stock runs up 25 percent for a bad reason (which is quite different from no reason), one just has to take some profits.

A reader asks how one calculates the beta for a portfolio. Technically, this is done by running the regression y - r = alpha + beta(m-r) where y is the percentage change in the value of the portfolio, r is the risk free rate (typically the rate on a 30 day t-bill) and m is the market rate of return (typically this is the rate of return on the a very broad index fund although strictly speaking, the market rate should include all assets, including real estate and human capital).

If one wants to get fancy, they can augment this regression by including factors that may help to further explain alpha, such as the whether the portfolio is geared toward small capitalization stocks and value stocks (the size and value factors, typically labeled SMB and HML). Increasingly, market technicians are also using what's called a momentum factor (typically labelled UMD), which historically has outperformed both the size and value factors (by a very large margin, I may add). The daily and monthly returns for these factors can be downloaded from Ken French's website.

Ha... like you say, you have to take profits. The closest thing I had to that was owning shares of NANO about 3 years ago. All the press on nanotechnology came out and the shares ran up, even though the company has nothing to do with nanotechnology. It ran up way beyond my target price so I dumped it. Then people figured out what the company really did and the price hasn't been that high since.